FINANCIAL MANAGEMENT
FIN3701
MAY /JUNE 2024
QUESTION 1
1.1 Use the concept of risk and cash inflows to calculate the NPV and IRR
relating to the investment in project A.
PROJECT A
Cash Certainty Certain PVIF Present value of
Year
inflows Equivalents Cashflows @10% cashflows
1 200 000 0,9 180000 0,9091 163 636,36
2 160 000 0,8 128000 0,8264 105 785,12
3 120 000 0,6 72000 0,7513 54 094,67
4 100 000 0,5 50000 0,6830 34 150,67
5 100 000 0,4 40000 0,6209 24 836,85
Total PV 382 503,68
Discount rate (RADR) = risk-free rate + the risk premium
= 8% + 2% = 10%
FIN3701
MAY /JUNE 2024
QUESTION 1
1.1 Use the concept of risk and cash inflows to calculate the NPV and IRR
relating to the investment in project A.
PROJECT A
Cash Certainty Certain PVIF Present value of
Year
inflows Equivalents Cashflows @10% cashflows
1 200 000 0,9 180000 0,9091 163 636,36
2 160 000 0,8 128000 0,8264 105 785,12
3 120 000 0,6 72000 0,7513 54 094,67
4 100 000 0,5 50000 0,6830 34 150,67
5 100 000 0,4 40000 0,6209 24 836,85
Total PV 382 503,68
Discount rate (RADR) = risk-free rate + the risk premium
= 8% + 2% = 10%
